Despite being part of an industry predicated on anticipating risk, American insurance companies seem distinctly muddled about climate change.
In the investments and underwriting that insurers lavish on fossil fuel companies, they act like climate deniers, ignoring the overwhelming scientific evidence that the emissions they finance are producing a slow-motion cataclysm.
Insurers know better. In fact, European insurance companies began sounding the climate change alarm as early as 1973, when Munich Re, the world's largest re-insurer, published a report describing climatic "processes such as, for example, the rising temperature of the earth's atmosphere" that makes "glaciers and the polar caps recede … and ocean temperatures rise." Since 2015, 15 large foreign insurers, including industry giants Allianz, AXA, Swiss Re and Zurich, have either divested or agreed to divest about $22 billion from coal companies, and three have stopped or limited coal underwriting.
No major U.S. companies have made similar moves, according to an online scorecard kept by Unfriend Coal, a coalition of environmental activists. Cynthia McHale, insurance director at the sustainability nonprofit Ceres, told me that climate change is such a charged topic in the U.S. that insurers here don't even like to use the phrase. But they incorporate climate change data into the computer risk analyses they draw upon to deny coverage or raise premiums for homeowners threatened by fires, floods and other climate-related disasters.
That's what has been happening, for example, in the 24 California counties deemed most at risk of wildfire. Thanks in part to drought and hotter temperatures brought on or exacerbated by climate change, fires in these predominantly mountainous regions have proliferated and intensified in recent years. A study of homeowner policies published in December by the state Department of Insurance showed a 15% rise in insurer-initiated non-renewals in a single year in those counties. "It's a growing problem," Insurance Commissioner Dave Jones told me.
But none of this appears to have prompted major American insurers to reconsider their stake in fossil fuels. A Ceres study of insurance companies' investments found that in 2014 the 40 largest U.S. insurers owned a higher proportion of oil and gas bonds than a typical bond index would. Three insurance groups — Ameriprise, Lincoln National and Voya Financial — held more than double the median concentration in the oil and gas sector.
Insurers could play a crucial role in halting coal mining and coal burning. Coal-fired power plants are the leading global source of greenhouse gas emissions. Although some large coal companies might be able to self-insure if their mining operations lost coverage, others would be forced to close. And utilities would be forced to close some coal plants if insurance weren't available.
Insurers' recklessness in supporting fossil fuels is dangerous not just for the planet but for the companies themselves. No doubt their investments are profitable now, but as the price of renewable energy drops — it is already lower than coal's cost and is close to rivaling natural gas' — fossil fuel businesses will lose some of their moneymaking allure. And as the world's nations move, fitfully so far, to restrict the use of coal, oil and gas, the chance is growing that extractive companies will be forced to take losses on "stranded assets."
On the underwriting side, insurers could be on the hook for claims related to accelerating climate-related disasters, such as California's fires last fall, and lawsuits that target fossil fuel companies as some of the world's largest greenhouse-gas emitters. Michael Gerrard, of Columbia University's Sabin Center for Climate Change Law, points out that these companies have yet to pay a penny arising from litigation claiming climate change damage, but eight new lawsuits filed recently could change that. One of them, brought by California cities and based on public nuisance law, seeks to hold Exxon, BP and other oil companies accountable for flooding caused by sea level rise.
Californians can take a small measure of solace from knowing that, as in many other climate battles, their state is in the lead in pressuring insurance companies to change their fossil fuel ways. Two years ago, Insurance Commissioner Jones required that large insurers doing business in California disclose their investments in oil, gas and coal, becoming the nation's first insurance regulator to make such a demand. In response, one governor and 12 attorneys general, from such fossil-fuel producing states as Oklahoma and Texas, wrote a letter to Jones denouncing his move as "misleading, alarmist, and fiscally irresponsible" and threatening to sue. Since then, hundreds of insurance companies have provided the information — now posted on the Department of Insurance website — and no lawsuits have been filed.
The emergence of something as accurately predicted, voluminously documented and potentially catastrophic as climate change inevitably reflects the simultaneous failure of many institutions, from its perpetrators, notably fossil fuel industries, to a long list of abettors, including Congress and the Trump administration. Insurers like to think of themselves as cautious and controversy-averse, but they're entangled in climate change whether they like it or not. Until they take action against it, they belong on the abettors list.
Jacques Leslie is a contributing writer to Opinion.